Auditing and Assurance in Australia

This article discusses the importance of following guidelines provided in ASA 315 to conduct an audit of an organization. It identifies two asset accounts and an expenditure account that are at risk of misstatements in the financial statements of IDP Education Limited. The article also suggests analytical and substantive audit procedures to evaluate these accounts.

Running head: AUDITING AND ASSURANCE IN AUSTRALIA
Auditing and Assurance in Australia
Name of the Student:
Name of the University:
Authors Note:

AUDITING AND ASSURANCE IN AUSTRALIA1
Contents
Introduction:....................................................................................................................................2
Answer 1:.........................................................................................................................................2
Answer 2:.........................................................................................................................................4
Answer 3:.........................................................................................................................................6
Conclusion:......................................................................................................................................9
References:....................................................................................................................................10

AUDITING AND ASSURANCE IN AUSTRALIA2
Introduction:
It is important to follow the guidelines provided in ASA 315 to understand an entity and
its environment with the objective of conducting an audit with utmost efficiency to give an
appropriate opinion on the financial statements of an organization. In this case the objective is to
conduct an effective audit of IDP Education by identifying few account balances which are at
risk of misstatements.
Answer 1:
Before commenting on the two asset accounts which are at risk assuming that going
concern is not an issue as mentioned in the document for IDP Limited it would extremely
beneficial for the readers to have the extract from statement of financial position of the company
showing different assets and respective balances of these assets of the company (Hay, Stewart &
Botica Redmayne, 2017).
IDP EDUCATION LTD BALANCE SHEET
Amounts are in AUD millions 2015-
06
2016-
06
2017-
06
2018-
06
Assets
Total current assets
Cash 1
5.00
3
5.00
4
2.00
49
.00
Accounts Receivables 2
8.00
2
6.00
3
5.00
43
.00

AUDITING AND ASSURANCE IN AUSTRALIA3
Deferred income taxes
1.00 1.00
3
.00
Expenses prepaid
5.00
7
.00
Other current assets 1
5.00
1
5.00
1
2.00
17
.00
Total current assets 5
8.00
7
7.00
9
5.00
119.
00
Total Non-current assets
Net property plant and equipment
Net property, plant and
equipment 8.00
1
7.00
2
4.00
25
.00
Investments 5
.00
Goodwill 1
3.00
3
8.00
39
.00
Intangible assets 5
7.00
4
0.00
7
8.00
94
.00
Deferred tax assets
6.00 6.00
6
.00
Long-term assets (others)
4.00 - - -

AUDITING AND ASSURANCE IN AUSTRALIA4
Total non-current assets 6
9.00
7
7.00
145
.00
169.
00
As it has already been provided that going concern assumption is not an issue thus, it seems that
following two asset accounts are at risk:
Goodwill: Despite no specific acquisition of goodwill by the company a significant increase in
the amount of goodwill has been observed in the Balance sheet (Wang & Fargher, 2017).
Intangible assets: Similarly, the reason for increase in intangible assets without any specific
reason year after year is a clear indicator of suspected risk in the account (Hellman, Andersson &
Fröberg, 2016).
Answer 2:
Asset account Explanation Key assertion Substantive test of
detail
Goodwill As already mentioned
that goodwill has
been increasing
continuously without
any specific
acquisition of
goodwill by the
company.
Increase in the
amount without
proper explanation.
The valuation method
used to value goodwill
shall be tested to check
whether the same is in
accordance with the
AASB 138. It is
important to verify the
goodwill valuation
technique of the

AUDITING AND ASSURANCE IN AUSTRALIA5
company as often
improper technique
would result in
inappropriate disclosure
of amount of goodwill
in the financial
statements of the
company. The
substantive procedure
shall also evaluate the
amortization method
that the organization
follows to amortize
amount of goodwill in
the income statement of
the company.
Intangible assets Intangible assets
valuation process
primarily determines
the amount of
intangible assets thus,
it is important to
ensure that
Lack of amortization
against intangible
assets in the books of
account.
Whether intangible
assets have been
acquired or developed
within the entity needs
to be verified by using
substantial procedures
and is the valuation

AUDITING AND ASSURANCE IN AUSTRALIA6
appropriate method
has been used to
value intangible
assets (Russell,
2017).
technique is in
accordance with AASB
138 (Carvalho,
Rodrigues & Ferreira,
2016).
Answer 3:
Again before identifying one particular expense account from the income statement of
IDP Education Limited a brief look at the income statement of the company would be helpful in
understanding the reason for selection of the particular expense account here. The table below
contains the extract of income statement of IDP Education Limited (Steenkamp & Steenkamp,
2016).
INCOME STATEMENT of IDP EDUCATION LTD
Amounts in AUD millions 2016-
06
2017-
06
2018-
06
Gross revenue 358
.00
391
.00
487
.00
revenue costs 173
.00
181
.00
218
.00
Gross profit 185
.00
209
.00
269
.00
Expenses
Administrative, sales and 112 124 158

AUDITING AND ASSURANCE IN AUSTRALIA7
general expenses .00 .00 .00
Operating expenses (Others) 1
7.00
2
5.00
3
6.00
Total operating expenses 129
.00
150
.00
194
.00
Operating income 5
6.00
6
0.00
7
5.00
Administrative, sales and general expenses of the company have been increasing at a rapid speed
over the last three years. Hence, this particular expense account has been chosen for verification
to evaluate whether there is any misstatement in income statement in respect of this particular
expense account (Boyle & Keep, 2018).
Expense account Explanation as to why at risk Key assertions
General, sales and
administrative
expenses
Though there has been continuous increase
in the amount of gross revenue of the
company however, the increase in sales,
general and administrative expenses is
significantly higher in each of last three
years. It is important to verify the expense
account to evaluate whether there is any
misstatement in respect of this particular
expense account (Roussy & Rodrigue,
2018).
I. Over the last
two years
almost 42%
increase in
sales, general
and
administrative
expenses raises
significant
doubt on the
reason of such
increase in the
expenses
account.
II. As a result
despite
substantial
increase in gross

AUDITING AND ASSURANCE IN AUSTRALIA8
revenue over the
last two years,
the operating
income of the
company has
stayed quite
low. It is
important to
evaluate the
reasons for such
low operating
income and is
the general
administrative
expense has
anything to do it
such low
operating
income.
III. The general
nature of the
account often
misused for the
purpose of
manipulating
the accounts by
recording
factious amount
under general
and
administrative
expenses.
Conclusion:
It is important to ensure that appropriate audit procedures are followed to express a valid
opinion on the financial statements of an organization, i.e. in this case IDP Education Limited.
Here two asset accounts and an expenditure accounts have been identified to evaluate whether
there is any misstatements in respect of these accounts in the financial statements of the

AUDITING AND ASSURANCE IN AUSTRALIA9
company. Analytical and substantive audit procedures would be helpful in coming to a particular
conclusion in respect of these three accounts.

AUDITING AND ASSURANCE IN AUSTRALIA10
References:
Boyle, A., & Keep, J. (2018). Clinical audit does not work, is quality improvement any
better?. British Journal of Hospital Medicine, 79(9), 508-510.
Carvalho, C., Rodrigues, A. M., & Ferreira, C. (2016). The Recognition of Goodwill and Other
Intangible Assets in Business Combinations–The Portuguese Case. Australian
Accounting Review, 26(1), 4-20.
Hay, D., Stewart, J., & Botica Redmayne, N. (2017). The Role of Auditing in Corporate
Governance in Australia and New Zealand: A Research Synthesis. Australian Accounting
Review, 27(4), 457-479.
Hellman, N., Andersson, P., & Fröberg, E. (2016). The impact of IFRS goodwill reporting on
financial analysts' equity valuation judgements: some experimental evidence. Accounting
& Finance, 56(1), 113-157.
Roussy, M., & Rodrigue, M. (2018). Internal Audit: Is the ‘Third Line of Defense’effective as a
form of governance? An exploratory study of the impression management techniques
chief audit executives use in their annual accountability to the audit committee. Journal
of Business Ethics, 151(3), 853-869.
Russell, M. (2017). Management incentives to recognise intangible assets. Accounting &
Finance, 57, 211-234.
Steenkamp, N., & Steenkamp, S. (2016). AASB 138: catalyst for managerial decisions reducing
R&D spending?. Journal of Financial Reporting and Accounting, 14(1), 116-130.

AUDITING AND ASSURANCE IN AUSTRALIA11
Wang, I. Z., & Fargher, N. (2017). The effects of tone at the top and coordination with external
auditors on internal auditors’ fraud risk assessments. Accounting & Finance, 57(4), 1177-
1202.